Best of the Week
Most Popular
1.London House Prices Bubble, Debt Slavery, Crimea 2.0 - Russia Ukraine Annexation - Nadeem_Walayat
2. Gold And Silver – 2014 Coud Be A Yawner; Be Prepared For A Surprise - Michael_Noonan
3.Sheffield, Rotherham Roma Benefits Plague, Ch5 Documentary Gypsies on Benefits & Proud - Nadeem_Walayat
4.Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - Jim_Willie_CB
5.Don't Miss the Boat on Big Biotech Catalysts: Keith Markey - Keith Markey
6.Gold Prices 2014: Do What Goldman Does, Not What It Says - David Zeiler
7.Bitcoin Price Strong Appreciation to Be Followed by Declines? - Mike_McAra
8.Gold Preparing to Launch as U.S. Dollar Drops to Key Support - Jason_Hamlin
9.Doctor Doom on the Fiat Money Empire Coming Financial Crisis - Andrew_McKillop
10.The Real Purpose Of QE - It’s Not Employment - Darryl_R_Schoon
Last 72 Hrs
America has Become a Police State - 19th Apr 14
Elite Herd Psychology And War By Default - 19th Apr 14
E.U. Officially Adopts the Bank Depositors Bail-In - 19th Apr 14
Goldman Sachs Is Highly Motivated To Low-Ball Gold Price - 19th Apr 14
Save MtGox - Bitcoin Important Implications of Going Down - 19th Apr 14
Stock Market SPX Topping Valuations - 19th Apr 14
Tesco Profits Panic! Back to Back £5 Off £40 Shop Voucher Promotions - 18th Apr 14
The Obama Game - Is Putin Being Lured Into a Trap? - 18th Apr 14
The Growing Threat to Capitalism - 18th Apr 14
Build Biotech Wealth on Solid Platforms - 18th Apr 14
Has Solar Power Finally Arrived? - 18th Apr 14
Bank Depositor Bail-Ins and Real Assets vs Liability-Based Assets - 18th Apr 14
10 Ways to Screw up Your Retirement - 17th Apr 14
One of Harry Dent’s Three Keys to Market Prediction is Cycles - 17th Apr 14
Obamacare Proof Stocks - 17th Apr 14
Gold, Silver And The Mining Sector: Prepare For A Severe Fall - 17th Apr 14
Hidden Australian Life Sciences Bio-tech Growth Stocks - 17th Apr 14
Disrupting Big Data Status Quo - 17th Apr 14
What the Stock Market Bears Have Been Waiting for... - 17th Apr 14
Copper Is Pathological and Suffers from SAD, but It Has Value - 17th Apr 14
Old World Order New World Order, Chaos And Change - 17th Apr 14
Even The US Government Will Abandon the U.S. Dollar - 17th Apr 14
Gold - Coming Super Bubble - 17th Apr 14
Glaring Q.E. Failure Spotted - Money Velocity Is Falling Rapidly - 16th Apr 14
High-Frequency Insider Trading - 16th Apr 14
Gold Prices 2014: Do What Goldman Does, Not What It Says - 16th Apr 14
These CEOs Will Make Investors Rich - 16th Apr 14
Climate Change, Central Banking And The Faustian Bargain - 16th Apr 14
Every Central Bank for Itself - 16th Apr 14
Social Security, U.S. Treasury Stealing Every Last Penny From Americans - 16th Apr 14
Ukraine Falling to Economic Warfare and Its Own Missteps - 16th Apr 14
Silver and Gold Miners Still Disappoint - 16th Apr 14
Silver, Gold, and What Could Go Wrong - 15th Apr 14
How I Intend to Survive the Meltdown of America - 15th Apr 14
France Wakes Up To The Multicultural Multi-Threat - 15th Apr 14
The Real Purpose Of QE - It’s Not Employment - 15th Apr 14
Peak Coal - 15th Apr 14
Flash Crash, Rigged Markets - What’s the Frequency Zenith? - 15th Apr 14
Forecasting U.S. GDP Growth: A Look at WSJ Economists’ Collective Crystal Ball - 15th Apr 14
Stock Market - Is Something Nasty About to Happen? - 15th Apr 14
How to Trade Your Way To Freedom - 15th Apr 14
Understanding (and Ignoring) the Media Bandwagon Against Gold - 15th Apr 14
When Stock Market Bubble Crashes, Take Refuge in Gold Stocks - 15th Apr 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold and Silver Decouple from Stock Market

Commodities / Gold and Silver 2012 Dec 21, 2012 - 06:39 AM GMT

By: Jordan_Roy_Byrne

Commodities

At the end of July we wrote an article examining the relationship between gold stocks and general equities. We sought to understand the huge variance in performance between the two markets. Sometimes they trended higher together. Sometimes the gold stocks surged while conventional equities fell into a bear market. Both markets have endured bad bears at the same time. Is there any rhyme or reason to why such variation?


Here was our conclusion:

What can history tell us going forward? The key is the correlation. If gold stocks are trending higher with the equity market into a potential recession and bear market, then the gold stocks would remain positively correlated over the intermediate term. However, we can see that if the gold stocks are in a cyclical bear while the broad market is nearing a trend reversal or while the economy is nearing recession, then the gold stocks will remain negatively correlated. This is evident in three of the four previous examples.

Interestingly, two of those instances occurred during the second half of the 1960-1980 bull market. The equity market (Dow) is in blue while the Barron's Gold Mining Index (BGMI) is in red.

Dow versus BGMI 1969-1976

Previously we referred to the decoupling as two separate points but in reality, the decoupling began in 1972 and lasted into early 1978. The above chart shows how the BGMI surged right as the DOW entered a cyclical bear market. When the DOW bottomed, the BGMI peaked.

Dow versus BGMI 1973-1979

Note how the BGMI bottomed in late 1976, just as the DOW's recovery petered out. The decoupling didn't end until early 1978.

Although no one (to my knowledge) has publicly discussed the current decoupling, it is clear and obvious for all to see. This decoupling began at the end of July 2011. Since GDX peaked, it is down 32% while the S&P 500 is up 25%. (Silver is down 32% and Gold is down 14%). Also, the S&P is closing in a five-year high while GDX is soon to retest a multi year low.

SPX versus GDX

Going forward, we have the setup for an amazing contrarian opportunity. The trigger is an exacerbation in economic data and the general markets. As long as the markets are trending higher then Gold and gold stocks won't get much of a bid. However, once markets lose momentum and the threat of increased policy becomes apparent, we will see precious metals confirm their bottom and resume their still fledgling cyclical bull. Now is the time to be vigilant but patient as these markets prepare to test their lows. Once these markets test their lows and flush out the weak bugs then that is the time to be a vulture. Speculators and investors are advised to carefully seek out the large or small companies which are poised for the best rebounds.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014